How the governments new bank tax will affect you

The banks are on the attack. Letting shareholders know that the new proposed bank tax, aimed at raising just over $6 billion over 4 years from the 4 majors and Macquarie, is unfair and will need to be passed onto someone.

That someone is you. If you are a borrower that has a mortgage, a client with a savings account or a shareholder with some equity in one of the banks you will be impacted.

Upfront I disclose that I am all three. I even have a business that uses one of the majors as a funding source, so you would be right to expect I would be fighting the good fight with the banks.

But I am not.

To go back a step, the government is looking at "easy" and "non confrontational" ways to get the countries budget back on track. Basically our revenue is greater than our expenses and they want to sort this out. Just like us as individuals, making a loss every year is not a good thing unless the losses are small and the spending is on things that will ensure our economy continues to grow in the long run.

I appreciate it's a tough job, but I can't say this government has given me any confidence that they know how to spend the tax that we as individuals OR big business pay.   

That said, if getting the budget back from deficit is the most important task they have, then I can see why charging the banks some extra bucks is the easiest and fastest way to do it. I agree with Michael Pascoe who in The Age has asked the bank lobbyists what would be a fairer way of raising these funds?

The banks have enjoyed a very beneficial relationship with the government over the journey. They have received government guarantees on deposits off the back of the GFC, helping them achieve strong credit ratings and access to cheaper money to lend.

They also have funding advantages over smaller competitors as a result of government support. Recently they have received another leg up from APRA giving them the green light to charge higher rates to investors and interest only loans with the objective of slowing down the property market. It may slow it down to a small degree but it has also given banks another opportunity to increase their margins on the very loans that make them plenty of money.

As you can see, it's hard to side with the banks when across the 5 banks impacted by this " new tax" they have made a combined profit of over $17 billion in the first 6 months of this financial year. $17 billion! Let's say they only do another $13 billion over the next 6 months and make  $30 billion for the full year.

This tax is projected to make a dent in those profits of around $1.6 billion per year.

About 5%.

The banks are on record saying that any new tax needs to be passed on. It can't be absorbed by the bank and anyone in business should understand that.

I do know when our business is faced with increased costs, yes we look to maintain margin, but we look firstly at whether there is any fat in how we operate. Are we doing things efficiently? Are we making the most of our resources? Can we reduce our expenses?  Let me assure you, there is plenty of fat in the banks, like no doubt many other corporates.

In the banks it starts with it's process inefficiencies, legal bills from dishonest behaviour and top tier management and executive salaries. So maybe the banks should start there before looking to "pass on" this tax to it's clients.

I believe there is merit in putting a timeframe on this. Not making it indefinite. After all, if it's a budget repair tax then the government should stop it after they get the budget back into surplus. But that would make the government accountable. Don't know if they are up for that.  

Bank bashing is easy. I am not about that. The banks no doubt have a complex and challenging business to run. But lets get real, this "tax" will not or should not have a significant impact on their ability to continue to run amongst the most profitable bank business' in the world and reward shareholders accordingly without the need to pass all of this burden on.

Using the standard rationale of a need for a "healthy financial system" and telling shareholders and everyday bank clients it is simply "unfair" when record profits are achieved year on year and executive salaries and bonuses reach the tens of millions just feels a little bit weak.